Income inequality exists in Australia, but the true picture may not be as bad as you thought

Wealth inequality remains a problem in Australia, but it is lower now than in the years leading up to the GFC.
Flickr/Sacha Fernandez, CC BY-NC-SA

Roger Wilkins, University of Melbourne

We hear a lot about inequality in Australia but the true picture is much more complicated than the headlines usually suggest.

The data indicate that wealth inequality has grown but is lower now than before the global financial crisis (GFC). And while the personal incomes of the very rich have gone up, overall household income inequality has barely shifted since the start of this century.

Economic inequality refers to the extent to which material well-being differs across people – how rich are the rich, how poor are the poor. But there are different ways to be rich, and different ways to be poor.

Income inequality is about the gap between people with high incomes and low incomes. Wealth inequality, on the other hand, looks at the gap between people with high net worth (for example, a lot of houses, stocks or other assets) and people with low net worth (few or no assets). People could have very similar incomes but be at opposite ends of the scale when it comes to their wealth, for example.

In practice, attention typically focuses on income inequality, although it is also important to consider wealth inequality.

Since 2000-01, there have been three key data sources for examining income inequality in Australia: the Australian Bureau of Statistics’ (ABS) Household Income and Wealth surveys, the Household, Income and Labour Dynamics in Australia (HILDA) Survey that the Melbourne Institute has been running since 2001, and the Australian Taxation Office’s tax records data.

The first two can also be used to examine wealth inequality.

For various reasons, the three data sets do not tell exactly the same story about income inequality trends since the beginning of this century. Nonetheless, there are some key conclusions we can draw.

1. The top 1% got richer, faster – but overall household income inequality has barely changed

The first conclusion is that the personal incomes of the very rich have grown somewhat more strongly than the personal incomes of the rest of the population.

For example, data compiled by the World Wealth and Income Database (WID World) show that the share of income going to the top 1% rose from 7.5% in 2000-01 to 9% in 2013-14.

WID World

Despite this increase in inequality of personal incomes at the top, measures of overall inequality of household incomes (as opposed to personal incomes) show relatively little net change this century.

One way to track this is to look at the Gini co-efficient, a commonly used measure of inequality that ranges from zero to one. Zero means total equality, with everyone on the same income. A Gini coefficient of one means complete inequality, the equivalent of one person having all the income.

HILDA survey data show that Australia’s Gini coefficient was 0.303 in 2000-01 and 0.296 in 2014-15. In other words, it has barely shifted.

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The ABS income survey shows a small increase from 0.311 in 2000-01 to 0.333 in 2013-14, but this increase can be attributed to changes made by the ABS between 2003-04 and 2007-08 to the definition and measurement of income:

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Being a longitudinal study, the HILDA Survey also allows us to consider inequality in incomes measured over longer intervals than one year. Incomes can fluctuate from year to year, and so we may get an exaggerated picture of income inequality if we examine only annual income. Some people who appear poor in one year may in fact have high incomes in other years and so, overall, are not really poor.

The HILDA Survey indeed shows that inequality of income measured over five years is lower than inequality of annual income. However, of some concern is that measures of inequality of five-year income have been trending upwards since the early 2000s — although the increase is very slight.

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2. Wage inequality has increased

While that’s been happening, however, the labour market has become more unequal.

Wage inequality is typically thought of in terms of inequality in earnings per hour worked, while labour market inequality more broadly could be thought of as inequality in total (annual) earnings across all persons in the labour force.

Wage inequality has steadily risen and, moreover, the share of employment that is part-time has risen. Research published last year showed that the higher your pay relative to others, the more likely you are to get a better pay rise.

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On the surface, it is remarkable that the large rise in labour market inequality has not — at least, not yet — translated to large increases in income inequality.

The reasons for this are complex, but an important contributor has been the relative concentration of employment growth in low-income households.

Another potential reason why increased wage inequality has not translated to increases in income inequality is our system of progressive income taxes and transfers. However, this seems largely to not be the case in the 2000s in Australia, since the tax and transfer system actually became less redistributive (was doing less to reduce income inequality) over this period.

So while the tax and transfer system has probably moderated the effects of increased wage inequality on income inequality, it has not completely neutralised it.

3. Wealth inequality grew – but is lower now than in the years leading up to the GFC

In terms of wealth, both the ABS income surveys and the HILDA Survey indicate that wealth inequality grew strongly in the years leading up to the global financial crisis (GFC).

The HILDA Survey, which has collected detailed wealth data every four years since 2002, shows that the wealth required to be in the top 1% of the wealth distribution increased by 140% in real terms between 2002 and 2006. This was a period in which both house prices and the share market were rising strongly.

However, wealth inequality appears to have moderated slightly since the GFC, with the wealth required to be in the top 1% actually 9% lower in 2014 than in 2006. This appears to primarily derive from weaker share market performance. The ASX200, for example, was approximately 20% below its October 2007 peak in late 2014 (and even now is still over 10% below the peak).

Perception and reality

In light of the minimal changes in overall income inequality this century, and the evidence that wealth inequality is lower now than in the years leading up to the GFC, it is perhaps surprising that public perceptions appear to be that inequality is growing strongly.

Income inequality has grown in the US more sharply than it has in Australia.
World Wealth and Income Database WID World

Perhaps also important is that household income growth in Australia has slowed since 2008-09, and indeed has essentially stalled since 2011-12. In part, this reflects slowing wage growth, but also important has been relatively weak growth in employment, and in particular full-time employment.

For example, the forthcoming HILDA Survey Statistical Report will show that, at December 2015 prices, the median “equivalised” household income – that is, household income adjusted for household size – was A$46,031 in 2011-12 and was still only A$46,007 in 2014-15.

This stagnation in average living standards is arguably likely to lead to greater focus on the fairness of the income distribution.

Roger Wilkins, Professorial Research Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, University of Melbourne

This article was originally published on The Conversation. Read the original article.

New tax treaty will close loopholes that allow multinationals to avoid tax

Miranda Stewart, Australian National University

Australia, with another 70 countries, has signed a multilateral treaty to create more coherence in fighting tax avoidance by large multinational corporations. The Multilateral Convention to Implement Treaty Measures to Prevent Base Erosion and Profit Shifting, or BEPS Convention, aims to close loopholes in the international tax system that result from differences in individual country tax systems.

Countries are fiercely protective of their own tax sovereignty and claim the right to set their own company tax rate and base. But this can result in lower company tax around the globe, as multinational enterprises can move capital investment to lower tax jurisdictions and take advantage of tax havens to reduce their global tax bill. This latest treaty will help to overcome this problem.

Since the global financial crisis, nearly a decade ago, the G20 countries have tried to reform international tax with a Base Erosion and Profit Shifting (BEPS) project. Australia has been a strong supporter of the BEPS project since it started, including as chair of the G20 in 2014.

This project resulted in 15 actions that were endorsed by the G20 in 2015. The signing of this tax treaty implements action number 15 to amend existing tax treaties to limit international tax planning.

The other BEPS actions aim to strengthen enforcement, remove inconsistencies in national tax rules, enforce disclosure of corporate tax profits in havens and encourage sharing of tax information between country revenue agencies.

Australia can’t go it alone on international tax

International tax cooperation remains critical and this BEPS Convention enables an anti-abuse framework to be embedded in Australia’s treaty network.

In the last century, countries around the world have negotiated bilateral tax treaties, producing a network of thousands of treaties. Australia alone has about 45 bilateral income tax treaties.

The main goal of bilateral tax treaties has been to prevent double taxation of international business where it operates in more than one country. But the terms of tax treaties can also be used to minimise tax. For example, a company may have significant business sales in a country – like Google in Australia – but under a treaty rule, it may not be treated as having a business presence there.

How does the BEPS Convention amend tax treaties?

Without this multilateral convention, it could take decades for countries to renegotiate these bilateral tax treaties. Where countries sign up, the new rules will take effect as soon as each country has ratified the convention.

The BEPS Convention is the first ever multilateral tax treaty that modifies substantive tax rules. Even the speed of signing the BEPS Convention is unprecedented: from treaty mandate to signature has been only 18 months. Most multilateral treaties take much longer, such as the Trans-Pacific Partnership, which has been in negotiation for more than nine years (and may not ever be agreed).

A leading British tax lawyer observed that the BEPS Convention is “not tax peace in our time”. But it is still significant.

The convention inserts a new anti-abuse rule which states that tax treaties are not to be used to abuse national tax laws, if a taxpayer uses a treaty rule for the principal purpose of reducing its tax liability in a country. The convention will also make changes to prevent mismatches in treaty tax rules and to end the artificial avoidance of a business tax presence in a country, for example by using a separate company to do its operations under a contract.

To push governments to resolve tax disputes, the convention inserts an arbitration clause into treaties. If two countries cannot resolve a treaty dispute, then after two years (and if no court case is on foot), it will go automatically to an independent arbitrator who can make a decision that binds the governments and taxpayer. Its controversial and many countries may not agree to arbitration but Australia has signed up to it.

Australia has adopted most of the BEPS Convention measures, as being consistent with its current tax treaty policy. But many countries, including Australia, will need to enact domestic legislation to bring the convention into law.

Once countries sign up, the treaty changes will take place immediately – this could amend as many as 30 of Australia’s treaties.

The future international tax architecture – but without the US?

The BEPS Convention was signed by more than 70 countries. This includes leading signatories such as China, Germany (the current G20 Chair), the United Kingdom, France and Japan and also several low tax financial centres like Singapore and Ireland. But the United States did not sign.

The US failure to sign is hardly surprising. It comes one week after President Trump withdrew the US from the Paris Climate Agreement. It’s another example of the US retreating from multilateral cooperation on issues affecting all nations.

The US also did not sign the Tax Administrative Convention, now with 111 country members, which provides the legal basis for the country by country exchanges of information about global profits for billion dollar companies, including with the Australian Tax Office. Instead the US insisted on “going it alone” with its Foreign Account Tax Compliance Act, or FATCA regime, which demands foreign countries provide data on US citizens.

Many US tax treaty provisions are in line with the BEPS Convention. But surely that misses the point of multilateralism in tax or any other field of global concern. Instead, we see China is taking a leading role in multilateralism. It is unclear what the US stance will mean for international tax in the longer term. However, this treaty will give some help to other countries aiming to tax global profits of US multinationals, including Google, Apple and Uber, while those companies lobby for the US to reform its own company tax laws.

The pace of international tax change is usually glacial and most country co-operative efforts go nowhere. The BEPS Convention provides, for the first time, an international legal architecture for future multilateral tax reform.

Miranda Stewart, Professor and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University

This article was originally published on The Conversation. Read the original article.

The economics of self-service checkouts

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Gary Mortimer, Queensland University of Technology and Paula Dootson, Queensland University of Technology

Self-checkouts in supermarkets are increasing as businesses battle to reduce costs and increase service efficiency. But looking at the numbers, it isn’t clear that self-service is an easy win for businesses.

Self-checkouts aren’t necessarily faster than other checkouts, don’t result in lower staff numbers, and there are indirect costs such as theft, reduced customer satisfaction and loyalty.

Worldwide, self-checkout terminals are projected to rise from 191,000 in 2013 to 325,000 by 2019. A survey of multiple countries found 90% of respondents had used self-checkouts, with Australia and Italy leading the way.

Employment in the Australian supermarket and grocery industry went down for the first time in 2015-16 and is projected to remain flat for a few years. But staff numbers are projected to rebound again, in part due to the need to curtail growing theft in self-checkouts.

Social trends pushing self-checkout

There are a couple of intertwining trends that explain the rise of self checkouts.

We now visit our supermarkets more frequently than ever before, two to three times per week in fact. This means our basket contains fewer items and being able to wander up to a self-checkout, with little to no wait time, has been an expedient way to shop. Most shoppers consider self-checkouts both fast and easy to use. Although this varies with age – 90% of shoppers aged 18-39 found self-service checkouts easy to use, only 50% of those over 60 years said the same.

Shoppers also gain value from taking control of the transaction – being able to ring up their own goods and pack them the way they want. This is because a sense of control over their own shopping can lead to greater customer satisfaction and intent to use and reuse self-serve technology.

The numbers behind self-checkouts

Wages represent around 9.5% of supermarket revenue in Australia, and reducing wages is one of the reasons proposed for the uptake of self-checkout.

But from a business perspective, moving from “staffed” checkouts to self-serve machines isn’t cheap. A typical setup costs around US$125,000. On top of that there are the costs of integrating the machines into the technology already in place – the software and other systems used to track inventory and sales, and the ongoing costs – to cover breakdowns and maintenance.

But the biggest direct cost to retailers of adopting self-service checkouts is theft. Retail crime in Australia costs the industry over A$4.5 billion each year.

There is reason to believe that rates of theft are higher on self-service machines than regular checkouts. A study of 1 million transactions in the United Kingdom found losses incurred through self-service technology payment systems totalled 3.97% of stock, compared to just 1.47% otherwise. Research shows that one of the drivers of this discrepancy is that everyday customers – those who would not normally steal by any other means – disproportionately steal at self checkouts.

Studies also show that having a human presence around – in this case employees in the self-checkout area, increases the perceived risk of being caught, which reduces “consumer deviance”. This is why retailers have been adding staff to monitor customers, absorbing the additional losses, or passing them on to customers in an “honesty tax”.

Making self-checkouts work

As you can see in this graph, preliminary work by researchers Kate Letheren and Paula Dootson suggests people are less likely to steal from a human employee than an inanimate object. Not only because they will get caught, but because they feel bad about it.

On the other hand, consumers have plenty of justifications to excuse self-checkout theft, which is leading to its normalisation.

To combat this, researcher Paula Dootson is trying to use design to combat deviance. One of the ways is through extreme-personalisation of service to reduce customer anonymity. Anonymity is an undesirable outcome of removing employees and replacing them with technology.

Other ideas are to include moral reminders prior to the opportunity to lie or steal (such as simply reminding people to be honest), and to humanise the machines by encoding human characteristics to trigger empathy.

While self-service technologies will continue to be adopted by businesses broadly, and particularly within the retail sector, it will be important for retailers to take a holistic approach to implementation and loss prevention.

Self-service technology reduces front line staffing costs and increases efficiency by re-distributing displaced staff into other service dominant areas of the business, but it creates unintended costs. These business costs can be direct, in the form of theft, but also indirect costs, like reduce customer satisfaction and loyalty. Something that some supermarkets are focusing on today.

Gary Mortimer, Associate Professor, Queensland University of Technology and Paula Dootson, Research Fellow; PwC Chair in Digital Economy, Queensland University of Technology

This article was originally published on The Conversation. Read the original article.

Chinese influence compromises the integrity of our politics

Former trade minister Andrew Robb walked from parliament into a high-paying post with a Chinese company.
Mick Tsikas/AAP

Michelle Grattan, University of Canberra

This week’s ABC Four Corners/Fairfax expose of Chinese activities in Australia is alarming – not just for its revelations about a multi-fronted pattern of influence-seeking, but also for what it says about our political elite.

Are its members – on both sides of politics – naive, stupid, or just greedy for either their parties or themselves?

Why did they think Chau Chak Wing and Huang Xiangmo – two billionaires with apparently close links to the Chinese Communist Party – and associated entities would want to pour millions of dollars into their parties?

Did they believe that, in the absence of democracy in the land of their birth, these businessmen were just anxious to subsidise it abroad? Hardly.

Even worse, after ASIO had explicitly warned the Coalition parties and Labor in 2015 about the business figures and their links to the Chinese regime, how could the Liberals, Nationals and ALP keep accepting more of their money? Seemingly, their voracious desire for funds overcame ethics and common sense.

And why would former trade minister Andrew Robb not see a problem in walking straight from parliament into a highly lucrative position with a Chinese company?

The spotlight is back on Labor senator Sam Dastyari who last year stepped down from the frontbench over a controversy involving a debt paid by Chinese interests. Monday’s program reported that Dastyari’s office and he personally lobbied intensively to try to facilitate Huang’s citizenship application. The application had stalled; it was being scrutinised by ASIO.

While the Liberals will, quite legitimately, renew their attacks on Dastyari, the case of Robb, also highlighted in the program, raises a more complex question.

Robb brought to fruition Australia’s free-trade deal with China. He announced his retirement late in the last parliament, stepping down as minister but seeing out the term as special trade envoy. He was one of the government’s most successful performers.

On September 2 last year Robb’s appointment as a senior economic adviser to the Landbridge Group – the Chinese company that had gained a 99-year lease to the Port of Darwin – was announced on the company’s website.

Landbridge’s acquisition of the Port of Darwin was highly controversial, despite being given the OK by the defence department. The Americans were angry they were not accorded notice, with President Barack Obama chipping Malcolm Turnbull about it.

Monday’s expose revealed that Robb was put on the Landbridge payroll from July 1 last year, the day before the election, and that his remuneration was A$73,000 a month – $880,000 a year – plus expenses.

Robb was touchy last year when his new position was questioned, saying: “I’ve been a senior cabinet minister – I know the responsibilities that I’ve got. I’ve got no intention of breaching those responsibilities.”

He did not give an interview to Monday’s program, but told it in a statement: “I can confirm that I fully understand my responsibilities as a former member of cabinet, and I can also confirm that I have, at all times, acted in accordance with those responsibilities”.

The formal responsibilities for post-separation employment are set out in the Statement of Ministerial Standards, dated November 20, 2015.

This says:

Ministers are required to undertake that, for an 18-month period after ceasing to be a minister, they will not lobby, advocate or have business meetings with members of the government, parliament, public service or defence force on any matters on which they have had official dealings as minister in their last eighteen months in office.

Ministers are also required to undertake that, on leaving office, they will not take personal advantage of information to which they have had access as a minister, where that information is not generally available to the public.

Ministers shall ensure that their personal conduct is consistent with the dignity, reputation and integrity of the parliament.

While Robb is not a lobbyist, and would argue that he has not contravened the letter of this code, it is hard to see how quickly taking such a position does not bring him into conflict with its spirit.

Why would this company be willing to pay a very large amount of money for his services? The obvious answer is because of who he is, his background, his name, his knowledge, and his contacts.

Robb surely would have done better to steer right away from the offer.

Both government and opposition, having for years been caught napping or worse about Chinese penetration, have started scrambling to be seen to be acting.

Turnbull last month asked Attorney-General George Brandis to lead a review of the espionage laws. Brandis says he will take a submission to cabinet “with a view to introducing legislation before the end of the year”.

The government is planning to bring in legislation in the spring parliamentary session to ban foreign donations, a complex exercise when, for example, a figure such a Chau, an Australian citizen, is involved.

In an attempt at one-upmanship, Bill Shorten – again on the back foot over Dastyari – says Labor won’t accept donations from the two businessmen featured in Monday’s program, and challenges Turnbull to do the same.

Shorten already has a private member’s bill before parliament to ban foreign donations, and on Tuesday wrote to Turnbull calling for a parliamentary inquiry “on possible measures to address the risk posed by foreign governments and their agents seeking to improperly interfere in Australia’s domestic political and electoral affairs”.

Out of it all will come action on foreign donations and perhaps tighter espionage laws. But it is to the politicians’ deep discredit that they have been so cavalier about the integrity of our political system for so long.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

No flies on Australia’s richest union

Michael West, University of Sydney

Imagine a company that received millions of dollars in government grants each year, paid no tax as it held charitable status, owned recruitment agencies and also owned a law firm that fought against penalty rates for young workers and workplace leave for victims of domestic violence.

There is such a company. It is called the NSW Business Chamber Limited. Its financial statements show the chamber recorded revenue of A$190 million last year, of which $5.8 million came in government grants.

It is difficult to tell without more intimate knowledge, but the accounts suggest the folk at the chamber may be living high on the hog.

“Direct salary and other costs of providing services” was $101 million last year (up sharply from $78 million in the prior year). A further $68 million was “employee benefits expense”, while the bill for cars was $2.8 million. The travel and entertainment chit was $2.5 million.

Chief executive Stephen Cartwright said today that the NSW Business Chamber had a strong focus on assisting SMEs (small to medium-sized enterprises) and conducting not-for-profit work such as training and apprentice schemes and advocacy. It was a “union” of sorts, he said, and like other unions it was a not-for-profit organisation.

Asked whether it was appropriate for the chamber to be claiming tax subsidies and government grants in view of the fact that it owned a law firm and recruitment agencies run to make a profit (and which, by their chamber parentage, immunised them from tax), Cartwright said these businesses helped to finance programs such as the chamber’s boot camp for unemployed youth in Western Sydney.

According to its financial statements, the chamber’s “core mission” is to “create a better Australia by maximising the outcome and potential of Australian businesses”.

There is a broader public interest issue at play here. While
other unions are struggling financially, the chamber is sitting on a plush investment portfolio of $184 million in shares, bonds and trusts, besides $13 million in cash.

The chamber owns the law firm, Australian Business Lawyers & Advisors Limited (ABL), and although ABL does not file financial accounts – as these are consolidated in the chamber’s accounts – it does appear to have a robust workload.

This week, ABL’s chief executive, Nigel Ward, and director of workplace relations, Luis Izzo, won a case in the Fair Work Commission that reduces penalty rates for workers in the hospitality industry.

These were big proceedings, which ran for 39 days, featured 130 lay witnesses, a dozen expert witnesses and nearly 6,000 public submissions.

The Australian Charities and Not-for-profits Commission (ACNC) regulates charities at a federal level. Its records show the chamber was registered in 2014 under the criteria “purposes beneficial to the general public and analogous to the other charitable purposes”.

While pursuing charitable purposes, ABL, on behalf of the chamber, has appeared in a raft of common issue proceedings in recent years acting for employers against union and employee claims including:

• award flexibility

• leave for blood and bone marrow donors

• casual and part-time employment

• family and domestic violence leave.

In the latter proceedings, the ABL’s Nigel Ward opposed an ACTU claim and argued against leave entitlements for victims of domestic violence.

Cartwright “strongly disagreed” with the proposition that arguing against entitlements for low-paid workers and victims of domestic violence was not a charitable exercise.

“We are required to be there by the Fair Work Commission,” he said. “It’s a necessary part of the workplace relations system … Our job is to go down there and act in the best interest of the country and employment. Without this, capital walks away.”

On the matter of how businesses operating for a profit could be consolidated into the chamber’s accounts and therefore not pay tax, he said this practice was appropriate as the cashflow was expended in not-for-profit activities assisting the chamber’s 13,000 members.

The $2.8 million expense for motor vehicles was for a fleet used by customers, often in regional areas, Cartwright said, and executives did not have company cars.

The chamber’s auditor, PwC, picked up $437,000 last year and $565,000 the year before and appears to have a conflict of interest in that its non-audit fees for tax advice and such exceeded its audit fees.

The chamber has also made political donations disclosures over the years. Both major parties have been beneficiaries, with the bulk of donations going to the Liberal Party. It has also funded election advertising in NSW. However, Cartwright said the chamber was “fiercely non-political”.

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This column, co-published by The Conversation with michaelwest.com.au, is part of the Democracy Futures series, a joint global initiative between The Conversation and the Sydney Democracy Network. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.

Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of Sydney

This article was originally published on The Conversation. Read the original article.

How America can copy Australia’s asset-recycling scheme

Asset recycling could lead to more US infrastructure spending.
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Caroline Nowacki, Stanford University; Ashby Monk, Stanford University, and Raymond Levitt, Stanford University

US Vice President Mike Pence announced the administration’s desire to emulate the Australian model of infrastructure asset recycling as part of President Trump’s US$1 trillion infrastructure plan. Our research shows that good governance is key to making it work in the United States.

New South Wales (NSW), a state that has had some success in asset recycling, created an independent agency to oversee its program. The agency is staffed by employees with private sector experience. Senior public figures are on the board to ensure independence.

The result has been an asset-recycling program that received high prices for government assets and has prioritised new projects based on cost and impact. Other Australian states have adopted this model, which will be key for the US too.

Recycling directs money to new infrastructure

Under an asset-recycling scheme, governments lease existing infrastructure assets to private companies and invest the proceeds in new infrastructure projects. In 2013, the Australian government started a A$5 billion incentive program giving state governments an additional 15% of the capital recycled from existing assets and reinvested in new infrastructure.

Between 2013 and 2016, NSW leased about A$15 billion of infrastructure assets to private investors, and allocated about A$6 billion to new projects, without raising additional public debt.

Infrastructure asset recycling manages to fund new projects by addressing the mismatch between government infrastructure promises and the goals of private investors.

Governments often lack the capital to invest in infrastructure and are worried about rising public debt. The World Economic Forum estimates the gap between infrastructure demand and investment is around US$1 trillion a year globally.

Meanwhile, private investors prefer to invest in infrastructure that is already built. These investments have lower risk than building something new, and offer the promise of consistent, inflation-adjusted returns over decades.

But the freed-up capital is not really free — governments forgo the future revenues from the leased assets. If the proceeds from privatising the asset are smaller than the future stream of payments forgone, and new projects do not produce revenues, government might need to levy a new tax or cut programs.

This is why good governance is key to ensuring the scheme works. Governments need to get the highest price for their assets and build the best projects for the lowest cost.

Good governance was key to NSW’s success

Between 2013 and 2015, NSW leased two ports, a desalination plant and an electricity distribution network for close to A$15 billion. The process was fast and the lease proceeds were high compared to similar deals. This indicates that the bidding process was effective at tapping into investors’ interest.

A key point is that the NSW legislature did not directly oversee the asset-recycling scheme. In 2011, the government created an independent statutory body, Infrastructure NSW, to identify and prioritise the delivery of critical public infrastructure in NSW.

Infrastructure NSW is made up of specialised units staffed with skilled professionals. One of these manages Restart NSW, the infrastructure fund into which lease proceeds are deposited.

Studying Infrastructure NSW, we see a number of reasons for its success.

While a relatively small agency, Infrastructure NSW is staffed with employees with private sector experience and has representatives of key ministries on its board. The private sector experience means employees are able to monitor and work effectively with private partners, and the knowledge and information gap between the private sector and the government is low.

Its prominent board also means Infrastructure NSW has the power to influence and stand up to the state legislators and administration, with sufficient independence to ensure politicians cannot fund low-priority projects in politically advantageous constituencies. The broad skill set of employees also helps to break down administrative silos and enables an integrated vision of infrastructure.

The importance of these characteristics aligns with results from research on other state-owned investment funds. And the NSW model has been copied.

Infrastructure Victoria, Building Queensland and Infrastructure Tasmania were all created in 2015 with similar characteristics to Infrastructure NSW. These agencies are independent from government, have an integrated vision for infrastructure, and private sector members sit on their boards.

Challenges and opportunities for the US

The use of public-private partnerships in infrastructure service delivery is increasing in the US, but has not reached anywhere near the scale of Australia or Canada. Many US states still lack the legislation, processes and structure to manage it effectively.

Another challenge for the US is identifying new projects with a sustainable source of funding. This is what makes asset recycling appealing for the private sector.

Considerable infrastructure governance and planning efforts are needed at the state level to make a success of asset recycling in the US. A federal initiative along the lines of the Australian government’s incentive program would afford states the opportunity to share their experience and work toward more unified legislation and procurement processes.

In Australia, asset recycling came with the creation of independent agencies and state infrastructure funds. If it wishes to follow Australia down the asset-recycling path, the US should also consider these kinds of governance to equip states with an integrated vision for infrastructure development, and the capabilities to work more effectively with the private sector.

Caroline Nowacki, PhD Candidate, Global Projects Centre, Stanford University; Ashby Monk, Executive and Research Director of the Global Projects Center, Stanford University, and Raymond Levitt, Professor of Civil and Environmental Engineering, Stanford University

This article was originally published on The Conversation. Read the original article.

Australia’s digital strategy needs major readjustment

When it comes to digital competitiveness, Australia needs to step up and get serious about education.
University of Washington/Flickr, CC BY-NC

Ron Johnston, University of Sydney

Australia ranks 15 out of 63 nations when it comes to digital competitiveness, according to a new report from the International Institute for Management Development (IMD). While we’re in the top 20, the result highlights serious structural flaws in our economy that will impact our future performance and living standards.

According to the IMD, Australia has also fallen four places to 21st in the world in economic competitiveness. On both scores, lead performers like Hong Kong, Switzerland and Singapore are very different from Australia, not just in their size or geography but because of a deep commitment to growing their competitiveness and technological capabilities.

Being 15th in digital competitiveness is worrisome. On most measures included in the score, Australia is steadily falling behind and changing this trajectory will take time and commitment.

Are we digitally competitive?

IMD’s analysis of digital competitiveness is based on three (somewhat opaque) performance characteristics:

• Knowledge: the capacity to understand and learn new technologies, which includes talent, training and education, and scientific performance,
• The technology environment: encompassing regulatory and technological frameworks, and capital, and
• Future readiness: based on adaptive attitudes, business agility and IT integration.

According to a summary of the IMD report by the Committee for Economic Development of Australia (CEDA is the official Australian partner for the yearbook), we have some areas of high comparative performance. These include the net flow of international students (in which we lead the world), e-participation and e-government (in which we rank 2nd respectively), and ease of starting a business (we place 5th).

But by many other measures we are at the bottom of the pack. Australia rates 45th when it comes to digital and technological skills. There’s hardly been silence on this issue: the Australian Computer Society, among many others, has long emphasised the growing labour market for IT skills, and the need to enhance training.

Singapore is surpassing Australia when it comes to digital competitiveness.
Etienne Valois/Flickr, CC BY-NC-ND

In education, Australia has a global ranking of 51st, down 20 places since 2013. In my view, this is substantially due to two factors. The first is the telling ranking of 52nd for the pupil-teacher ratio in tertiary education, which raises questions about the adequacy of university funding.

The second is a very low level of employee training, where we rank 43rd. The National Centre for Vocational Education and Research (NCVER) has argued that the growth of casual employment, together with outsourcing, has had a significant impact on vocational education and training (VET) in the workplace. As it states,

There has been a shift in the balance of responsibility for VET in Australia. Employers using labour hire or outsourcing have tried to shift the burden of training onto the labour-hire firm or the outsourced service provider. However, these organisations are in turn trying to minimise any investment in training. At the same time the government’s role in direct provision of generalist and comprehensive trade and vocational training has declined in favour of support for a training market and user choice.

Given regular reports of the failings of Australia’s slow internet and broadband rollout, it comes as no surprise that Australia ranks 40th for internet bandwidth speed and 54th in communications technology. What chance for a “smart country” when we cannot invest in the necessary infrastructure?

Finally, despite the almost daily reports of cyber insecurity, and announcements of investment by government, our current ranking on cybersecurity is an alarming 40th. We clearly lag well behind most other countries in preparing for this new threat.

So what might be done?

Specific policies focused on these failings are not the answer. Australia’s innovation policy has suffered for years from fragmentation, short-term measures, changes of emphasis and an almost indecent desire to “clean the slate”.

Rather, as has been emphasised by the Academy of Technology and Engineering (ATSE), each of these elements needs to be seen as interconnected, and afforded support over many years. The ATSE has said,

Australia needs a suite of complementary measures to incentivise innovation which are delivered at sufficient scale, with sufficient funding, and with the long-term support and stability necessary to be effective.

For Australia, the difference between us and Singapore is all too evident.

Its government-affiliated Committee on the Future Economy released a commendable seven-point national economic strategy in 2017. The group suggested, among other points, substantial measures to boost trade and investment through a “a Global Innovation Alliance”, the requirement for companies to play a stronger role in developing their workers and further building digital capabilities.

In contrast, we have little problem taking on 5 to 10 year projects to expand the housing supply, build roads, airports and dams, but seem to baulk at investment in what has become the biggest driver of economic competitiveness – the generation and application of knowledge.

The root cause of Australia’s continuing decline in competitiveness may well be what Ross Garnaut and others have labelled the country’s “great complacency” – the “she’ll be right” attitude that assumes because we have prospered in the past, it must inevitably continue.

Such critics will be proven correct if we continue to imagine our future wealth is a matter of providence, as opposed to welcoming major reform and investment in education.

Ron Johnston, Executive Director, Australian Centre for Innovation, University of Sydney

This article was originally published on The Conversation. Read the original article.

With its 2017 budget the government is still discouraging women

Recent figures show that women are adversely effected by the 2017 federal budget.
AAP Image/Tracey Nearmy

Helen Hodgson, Curtin University

The 2017 federal budget was pitched as a fair budget, but much depends on your definition of fairness. Reviewing the policies through a gender lens, there is little to address the entrenched economic disadvantage experienced by women.

Australia was known for being a pioneer of policies that are sensitive to the impacts on different genders, but that 30-year history came to an end in 2014 when the Abbott government announced it was abandoning the practice. Rather than see this analysis disappear, the National Foundation for Australian Women (NFAW) stepped in and partnered with academics like us, to analyse the budget through the gender lens. We review the effect that each announced policy will have on women’s lives: their economic status and well-being.

We found there were no measures designed to specifically address gender inequality and the related women’s entrenched financial vulnerability.

It’s a relief that the government has abandoned the so-called “zombie measures” which included changes to the family tax benefit and paid parental leave measures. These measures would have had a direct impact on women by adding to the effective marginal tax rate. They would also have reduced the female workforce participation rate, having a long-term effect on the economic well-being of women and their families.

However the budget still includes measures that have a disincentive effect in the workforce. The increase in the Medicare levy will affect those on incomes greater than A$21,644. For those with eligible children, the Family Tax Benefit A payment rates are frozen for two years and those who pay child care fees receive will continue to face high effective marginal tax rates (EMTR’s).

A flat increase in taxes or levies will particularly impact low income earners. Women are overrepresented in the lowest income levels, so changes to government benefits and increases in taxes have a disproportionate affect on women. Recently released ATO statistics show the median income for women was A$47,125 in 2014/15, while for men the amount was A$61,711.
And the recent reduction in penalty rates has already been identified as disproportionately affecting women.

These changes hit those earning well below the average wage, and are particularly harsh for women. Combined, these changes could lead to effective marginal tax rates of possibly 100% or higher for some women, particularly as Family Tax Benefit Part A begins to decrease at A$51,903.

The long awaited housing package will have some benefits for women. But community organisations will need to be vigilant in ensuring that the new National Housing and Homelessness Agreement ensures that funding is guaranteed for the homeless and for women fleeing domestic violence.

There has already been criticism of initiative to encourage older Australians to downsize their homes, but when a gender lens is applied, the inherent bias becomes clear. Economic patterns established during a woman’s pre-retirement years mean that women are more likely to be in receipt of the age pension, and are more likely to be receiving the full age pension. They are also less likely to have superannuation, and the balance will be lower.

Where a person is in receipt of the age pension, the downsizing initiative will reduce it, so single women are more likely to lose entitlements if they access this benefit. For example, a widow maintaining a home that is bigger than she now needs, will not be able to benefit from downsizing with this policy.

The increase in the Medicare levy to fund the National Disability Insurance Scheme (NDIS) is also a mixed outcome. The primary carer for a person with a disability will benefit from access to the NDIS, as the additional funds for services will relieve financial and emotional pressure on the carer. But because women are still more likely to be the primary carer for a family member with a disability, this measure will disproportionately improve the lives of women.

Despite the commitment to fully fund the NDIS there are no measures to address workplace conditions. The caring economy is still largely based on women, whether they provide paid care or unpaid care.

Women working in the care sector still endure historically undervalued pay rates and working conditions, whether in the NDIS, childcare or aged care. The current consumer directed care model encourages the use of casual workers, which further reduces economic security for these women.

This year’s budget delivers some significant improvements in infrastructure, disability support, health and housing. These are welcome because they place a higher weight on the provision of government services, than unfair policies aimed at arbitrarily reducing the surplus.

The 2017 budget contains initiatives that help alleviate some of the worst aspects of its predecessors. However, it doesn’t radically turn things around for women.

Helen Hodgson, Associate Professor, Curtin Law School and Curtin Business School, Curtin University

This article was originally published on The Conversation. Read the original article.

Full response from the AiGroup for a FactCheck on how Australia’s top tax rates compare internationally

original.

Sunanda Creagh, The Conversation

In relation to this FactCheck on the AiGroup’s Innes Willox’s statement that Australia has “one of the highest progressive tax rates in the developed world”, a spokesman for the AiGroup sent the following sources and comment:

Innes was referring to top marginal tax rates. Data for 2016 show that Australia has a relatively high top marginal tax rate (49%) but not the highest among OECD countries (Sweden is top, at 60%). The rub is that our top marginal rate cuts in at a relatively lower level of income than most other OECD countries (2.2 times our average wage).

Chart created by AiGroup using OECD data.
AiGroup/OECD

Chart created by AiGroup using OECD data.
AiGroup/OECD

The spokesman also sent a screenshot from an OECD report titled Revenue Statistics 2014 – Australia:

A screen shot from the OECD report Revenue Statistics 2014 – Australia.
OECD

Sunanda Creagh, Editor, The Conversation

This article was originally published on The Conversation. Read the original article.

FactCheck Q&A: does Australia have one of the highest progressive tax rates in the developed world?

The AiGroup’s Innes Willox, speaking on Q&A.
Q&A

Kathrin Bain, UNSW

The Conversation fact-checks claims made on Q&A, broadcast Mondays on the ABC at 9:35pm. Thank you to everyone who sent us quotes for checking via Twitter using hashtags #FactCheck and #QandA, on Facebook or by email.

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Excerpt from Q&A, May 15, 2017. Quote begins at 0.50.

Look, we just need to keep in mind that we have one of the highest progressive tax rates in the developed world at the moment. – Innes Willox, chief executive of the Australian Industry Group, speaking on Q&A, May 15, 2017.

When Q&A host Tony Jones asked if wealthy people should pay more tax, the AiGroup’s Innes Willox said that Australia already has one of the highest progressive tax rates in the developed world.

Is that true?

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Checking the source

When asked for sources to support Innes Willox’s statement, a spokesman for the AiGroup clarified that Willox was referring to top marginal tax rates.

The spokesman referred The Conversation to OECD tax statistics, and two charts built using that data, saying that:

This shows that Australia has a relatively high top marginal tax rate (49%) but not the highest among OECD countries (Sweden is top, at 60%). The rub is that our top marginal rate cuts in at a relatively lower level of income than most other OECD countries (2.2 times our average wage).

You can read his full response and see those charts here.

Is it true? Not exactly

Looking at OECD data, Australia’s highest marginal tax rate is higher than the OECD median. Out of the 34 OECD member countries in this data set, Australia ranks 13th for the top marginal rate of tax, meaning 12 countries have a higher top marginal rate, and 21 countries have a lower top marginal rate.

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However, a straight comparison like this can be misleading. More than half (19) of the OECD countries impose “social security contributions”. The OECD defines social security contributions as “compulsory payments that confer an entitlement to receive a (contingent) future social benefit”. It notes that they “clearly resemble taxes” and “better comparability between countries is obtained by treating social security contributions as taxes”.

When social security contributions are taken into account, Australia’s “ranking” in terms of top marginal rate of tax drops to 16 out of the 34 OECD member countries – making it still higher than the OECD median top marginal rate, but not by much.

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The other point noted by the AiGroup spokesman was that Australia’s top marginal tax rate applies at a relatively low level of income compared to most other OECD countries.

Australia’s highest marginal tax rate applies to taxable income above A$180,000, approximately 2.2 times Australia’s average wage. The AiGroup spokesman was right to say this is relatively low, with the majority of OECD countries (20 out of 34) applying their highest marginal tax rate at income levels higher than Australia (that is, at income levels higher than 2.2 times the average wage).

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However, it is worth noting that based on the latest Australian Taxation Office statistics, for the 2014-15 tax year, only 3% of individual taxpayers fell into the highest tax bracket.

Where Australia does rank amongst the highest in the OECD is the percentage of total tax revenue that is derived from individual income taxation.

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In 2014, 41% of Australia’s taxation revenue came from income taxation on individuals. This is the second highest in the OECD (the highest being Denmark at 54%) and significantly higher than the OECD average of 24%.

Verdict

The statement made by Innes Willox that “Australia has one of the highest progressive tax rates in the developed world at the moment” is an exaggeration.

Australia ranks 13th in the OECD for the top marginal rate of tax, and 16th if social security contributions are taken into account.

However, Australia does rely more heavily on personal income tax (when compared to other taxes) than all but one other OECD country. – Kathrin Bain

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Review

I agree that the statement is an exaggeration. 13th out of 34 is higher than the median, but it would be equally true to say that more than one-third of the OECD countries have a higher personal marginal tax rate than Australia.

It is always problematic to try to compare tax data across different countries. Although the OECD does try to make the data comparable the differences between tax and welfare systems can lead to misleading comparisons.

It is generally well known that certain Scandinavian countries, such as Sweden and Denmark, have a very high marginal tax rate. However those countries also tend to have a different approach to social and welfare spending. Australia does not have a dedicated social security tax: pensions and income support are paid from general revenue. This structural difference in the tax-transfer systems does limit the comparison.

Australia does have a high reliance on personal income tax, and the top marginal rate is higher than the median OECD level. Although the top marginal rate is relatively low at 2.2 times the median wage, the fact that only 3% of the population are in the top bracket says that we, in fact, have a relatively flat tax structure, with most taxpayers in lower tax brackets. – Helen Hodgson

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The Conversation FactCheck is accredited by the International Fact-Checking Network.

The Conversation’s FactCheck unit is the first fact-checking team in Australia and one of of the first worldwide to be accredited by the International Fact-Checking Network, an alliance of fact-checkers hosted at the Poynter Institute in the US. Read more here.

Have you seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

Kathrin Bain, Lecturer, School of Taxation ＆ Business Law, UNSW

This article was originally published on The Conversation. Read the original article.